WASHINGTON — A destructive hurricane season caused significant disruptions along the Gulf Coast and the southeastern United States but businesses remained optimistic about growth over the medium term, the latest Federal Reserve Beige Book survey showed Wednesday.
Despite "major disruptions" from Hurricanes Harvey and Irma in the Richmond, Atlanta and Dallas districts, contacts from all 12 Fed banks reported modest or moderate economic growth in September and early October, same as the previous period, the Beige Book said.
Most businesses in the affected districts said they did not expect a significant long-term impact but that labor shortages in already-tight job markets may become more acute as the recovery effort continues.
The survey — which informs the Federal Open Market Committee at its Oct. 31-Nov. 1 meeting — was conducted by the Minneapolis Fed before Oct. 6.
With all districts reporting favorable growth conditions, the survey signals the economy remains on a path of expansion in line with expectations among Fed policymakers. Many officials have said it would be appropriate to raise the fed funds rate once more before the end of the year barring any negative economic shocks, and market expectations are centering on the December FOMC meeting as the likely venue for the move.
Manufacturing activity continued to grow in most districts along with nonfinancial services, the survey said. Retail spending rose slowly while auto sales and tourism increased. Both commercial and residential real estate construction rose and loan demand was stable to modestly higher.
However, price pressures "remained modest" since the previous report with several districts noting increased manufacturing input costs "weren't passed through to selling prices."
The hurricanes lifted some prices more rapidly, particularly in the transportation, energy and construction materials sectors, the survey said. Supply-chain disruptions drove some raw material prices higher in the Richmond district while construction businesses in the Atlanta Fed district said they expected already-rising costs to increase significantly due to rebuilding efforts.
Policymakers have said they expect the storms to drive inflation higher but that the effect would be temporary. The lack of broader pricing pressures are of bigger concern for them as they weigh a third rate hike this year.
The survey noted "widespread labor tightness" but that the majority of district reported "only modest to moderate wage pressures." However, there were signs of stronger pressures in certain sectors such as transportation and constructions, as well as reports of a growing use of nonwage compensation such as sign-on bonuses and overtime to attract and retain workers, the survey said.
A chamber of commerce executive in the Cleveland Fed district said firms are incentivizing workers with bonuses and higher wages in order to avoid turnover, which has resulted in the narrowing the gap between low- and middle-wage workers, the survey said.
Businesses continued to cite difficulty in filling positions at a range of skill levels. Growing demand for transportation services was pushing up wages for truckers even as companies struggled to find drivers, several Fed districts reported.
In the San Francisco district, labor shortages and increased unit labor costs in the agriculture sector "fueled investments in automated technology," the regional Fed bank reported. Technological gains and favorable tax conditions also spurred investment in entertainment services while investments in cloud computing and data analytics boosted sales at large technology companies in the district.
Districts hit hard by the hurricanes reported concern over skilled-worker shortages and increases in labor costs in the aftermath of the storms. In the Dallas district, where the manufacturing sector reported robust expansion, some firms said difficulty finding workers was impeding their growth.
